Coca-Cola Is a Great Company, But I Think This Stock Is a Better Investment

Key Points

• Coca-Cola is one of the most recognized brands in the world.

• Coca-Cola's business is well-run and performing relatively strongly right now.

• Investors are well aware of Coca-Cola's strengths, which makes this consumer staples peer more attractive.

• 10 stocks we like better than Coca-Cola ›

Coca-Cola (NYSE: KO) is performing very strongly today, with organic sales up 6% in the first quarter of 2025. That comes amid a tough backdrop for consumer staples companies, thanks to inflation and consumers' worries about their finances. But Wall Street isn't ignorant of Coca-Cola's success, and that makes this relatively poorly performing peer a better investment option today.

What's wrong with Coca-Cola?

From a business perspective, there's not much wrong with Coca-Cola. As noted, it is performing well right now. That success is driven by the company's stable of iconic brands, its global distribution strength, a top-notch marketing team, and industry-leading research and development skills. Given its massive $300 billion market cap, Coca-Cola also has the wherewithal to act as an industry consolidator.

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Image source: Getty Images.

The company's incredible success is highlighted by its status as a Dividend King. At this point, the dividend has been increased for an impressive 63 consecutive years. A company simply can't build a record like that by accident. It requires a strong business plan that gets executed well in both good times and bad.

The problem with Coca-Cola is its valuation. Wall Street is well aware of how well the business is performing and has rewarded the stock accordingly. The price-to-sales (P/S), price-to-earnings (P/E), and price-to-book value (P/B) ratios are all above their five-year averages. The 2.9% dividend yield is toward the low end of the stock's 10-year yield range.

KO data by YCharts.

Investors are paying up for Coca-Cola right now as it is performing strongly. But even good companies go through hard times, eventually. Those hard times are when you are more likely to find an attractive entry point. That's why investors looking at Coca-Cola should probably do a deep dive into beverage peer PepsiCo (NASDAQ: PEP).

PepsiCo is struggling right now, so you should buy it

Unlike Coca-Cola, PepsiCo's first quarter was a little bit disappointing. Organic sales only rose 1.2%, and management gave a rather dour view of the near-term outlook. Investors have punished the shares, which are down around 30% since mid-2023. This is an opportunity for dividend investors who think long term.

First, PepsiCo's 4.3% dividend yield is near the highest levels in recent history. Its P/S, P/E, and P/B ratios are all below their five-year averages. Overall, while Coca-Cola looks expensive, PepsiCo looks cheap.

Yet the company has an incredible long-term history, nearly equal to that of Coca-Cola. The dividend has been increased annually for 53 consecutive years. The fundamental strength of PepsiCo's core business is also every bit as impressive as that of Coca-Cola. However, PepsiCo offers more diversification in the consumer staples space, since its business spans beverages, snacks, and packaged foods.

Sure, PepsiCo isn't doing as well as Coca-Cola right now. But that doesn't mean that PepsiCo will always be an industry laggard. In fact, history suggests that the two businesses will eventually switch places at some point, like they have before. Then PepsiCo will look like the better investment. But the time to buy it won't be when Wall Street has bid the price up to lofty levels. The time to buy PepsiCo is when investors are downbeat, which is the case right now.

Going against the crowd isn't easy

It is much easier to follow along with the crowd and buy whatever stocks are hot at the moment. In the case of Coca-Cola, the logic behind buying the stock includes strong business performance, which makes doing what everyone else is doing that much easier to justify. But you are paying at least full price, if not more, for the privilege of owning Coca-Cola. That limits your upside.

For investors who can handle being a little bit contrarian, fellow consumer staples Dividend King PepsiCo has an equally impressive business. While it isn't performing at the top of its game right now, it has successfully muddled through difficult periods before. If you invest for the long term, PepsiCo is likely to be a better dividend stock for you to buy. That's exactly why I put my family's hard-earned savings into PepsiCo stock.

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Reuben Gregg Brewer has positions in PepsiCo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.